Like the awkward age between youth and adult, mid-cap stocks are caught between the excitement of their small-cap brethren and the potential they represent, and large caps with their general time-tested support and security.
Yet there are still plenty of mid-cap stocks that can give investors plenty growth along with the relative safety of market acceptance…
A beaten-down stock with big upside potential
John Bromels (iRobot): The stock market recently battered shares of robotic vacuum maker iRobot to the point that it almost fell out of mid-cap range and into small-cap territory. The reason for the stock’s 30% haircut was a worse-than-expected Q1 2019. However, much of the news from the company wasn’t all that bad.
In Q1, revenue grew by 9% year over year to $237.7 million, but the company’s operating expenses grew by almost as much: 7%. However, there’s a very good reason for iRobot’s increased expenses. The company is developing a robotic lawn mower called the Terra t7 and another new as-yet-unnamed device for release later this year. These will join the company’s new high-end vacuum, the Roomba s9+, and its new robotic mop, the Braava jet m6, both of which were released in May.
With smart-home systems becoming more and more widespread, the demand for smart-home-compatible devices like iRobot’s latest models should increase exponentially. While iRobot has a dominant share of the robotic vacuum market, it — and robotic vacuums in general — controls less than 25% of the high-end vacuum market. Put together, this adds up to a lot of opportunity for iRobot, regardless of whether a single quarter measures up to Wall Street’s expectations.
With the stock now trading at a 30% discount to its recent 2019 highs, now is a fantastic time to consider picking up some shares.
A second chance to buy a market leader in a growing industry
Jamal Carnette, CFA (Upwork): After exploding 40% on its IPO day, shares of the freelancer-employment platform now trade near their $15 IPO price, giving investors another bite at the apple. Upwork’s sell-off was primarily on account of the company’s first-quarter earnings: Despite beating on both the top and bottom lines, the company’s forward guidance fell slightly short of Wall Street’s expectations.
Despite the temporary setback, Upwork’s long-term drivers remain in place. While concerns that America is becoming a gig-only economy (contractors, temps, etc.) appear to be overstated as only 10% depend on gigs as their primary income, a study from Cornell University and Aspen Institute found that approximately 30% of our workforce participates in a gig-employment arrangement. The remainder do so in addition to their primary jobs, or to use millennial parlance, as a “side hustle.”
Whether it’s supporting workers who depend on gigs as their primary job or those side hustling for extra income, Upwork is well-situated to take advantage of this growing trend. As the largest freelancing website, Upwork’s network effects will keep both employers and job-hunters on its platform. Long-term investors should embrace the opportunity…
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